AP
Retail Sales Up on Gift Cards, Mild Weather
Thursday February 2, 12:21 pm ET
By Anne D'Innocenzio, AP Business Writer
Merchants Report Better-Than Expected Sales in January on Gift Card Use, Mild Weather
NEW YORK (AP) -- Consumers armed with gift cards and lured by mild weather returned to stores and malls in January, buying clearance and spring merchandise and giving many retailers a better-than-expected sales boost for the month.
As merchants reported their results Thursday, winners cut across all categories, including discounters like Wal-Mart Stores Inc. and Target Corp., wholesale club operators such as Costco Wholesale Corp., teen retailers including Abercrombie & Fitch Co. and mid-price and upscale department stores such as Nordstrom Inc. and J.C. Penney Co. Inc.
Even Gap Inc., which has been struggling to find the right fashion formula, turned in a sales performance that pleased Wall Street.
Overall, merchants' reports provided some encouraging news about fourth-quarter profits, as many stores at least backed their earnings forecasts. Federated Department Stores Inc. raised its earnings outlook as it announced sales in line with analysts' projections.
"In January, there was a collision of one-time factors working for retailers," said Michelle Bogan, retail strategist at Kurt Salmon Associates. But she cautioned that "retailers shouldn't read too much into the numbers now that consumers have gotten their holiday bills and appear to be tightening their wallets."
The International Council of Shopping Centers-UBS sales tally of 65 retailers posted a 5.1 percent gain, better than its forecast of up to 4 percent. January's figures also marked the industry's best performance since June 2005, when the tally rose 5.2 percent. The index is based on same-store sales, or sales at stores open at least a year, considered the best indicator of a retailer's health.
While January is the least important month of the retail calendar, its significance has grown since 2001 because of the impact of gift cards, said Michael P. Niemira, chief economist for the mall association. Although people buy gift cards in December, the retailers don't include them in their sales tallies until the cards are redeemed.
The cards do have many advantages for retailers, though, especially the fact that shoppers tend to spend well above the face value of the cards when they redeem them.
Retailers were also helped last month by warmer-than-usual weather in the Northeast and Midwest, which put consumers in the mood to buy spring clothes and also blunted the effects of high heating costs. Retailers were also helped by modest gains in the year-ago period, when two winter storms dampened business.
Merchants are also reaping the benefits of a steadily improving job market, which helped send consumer confidence last month to its highest level in three and a half years. The Labor Department reported Thursday that the number of Americans filing for unemployment benefits fell to 273,000 last week, a decline of 11,000 from the previous week. The report bodes well for a significant improvement in the labor market.
Still, analysts expect merchants to face some challenges in the next few months as consumers feel the squeeze of higher heating bills with the arrival of colder weather. A weakening housing market and rising interest rates are also expected to limit spending. What's also alarming is that shoppers may be on the verge of tapping out -- a government report issued Monday said Americans' personal saving rate dipped into negative territory in 2005 as consumers are depleting their saving to finance their spending.
"Consumers are going to be more mindful of spending," Bogan added. "If I were a retailer, I would be concerned."
Wal-Mart, the world's largest retailer, had a same-store sales gain of 4.7 percent, its best performance since May 2004, when it racked up a 5.9 percent gain. Analysts polled by Thomson Financial had expected a 4.4 percent gain for January.
But Wal-Mart lost a little thunder earlier this week amid Exxon Mobil Corp.'s announcement that its annual revenue reached $371 billion last year. That means the discounter will give up its status at the top of the Fortune 500 list when it's released this spring. Wal-Mart, whose fiscal year runs through January, reported $312.96 billion in revenue.
Target had a robust 5.2 percent gain in same-store sales, better than the 4.8 percent forecast.
Costco posted a same-stores sales increase of 9 percent, better than the 6.9 percent estimate.
Department stores generally had a strong performance.
Nordstrom posted a robust same-store sales increase of 6.0 percent, better than the 4.7 estimate.
J.C. Penney Co. Inc.'s same-store sales at its department store group were up 2.5 percent, surpassing the 2.0 percent forecast. The company cited a strong response to spring merchandise.
Federated announced a 1.0 percent increase in same-store sales, in line with the 1.2 percent Wall Street projection. The company attributed higher profits in the fourth quarter to a better-than-expected performance at both its Federated division stores and the May Department Stores Co. divisions acquired last year.
But Kohl's Corp. was a straggler, turning in modest 2 percent gain in same-store sales, weaker than the 3.5 percent forecast.
Talbots Inc. had a slim 0.8 percent same-store sales gain, in line with the 0.6 percent forecast. The apparel retailer also backed its fourth-quarter earnings outlook.
Gap announced a 1 percent same-store sales gain, much better than the 2.8 percent decrease that Wall Street expected. Helped in part by a one-time tax benefit, the company raised its full-year profit outlook, though it cautioned that profit margins were significantly below January 2005 levels last month as the retailer heavily discounted winter goods.
Teen retailers again did well. Abercrombie & Fitch's same-store sales soared 33 percent, better than the 15.7 percent forecast.
Pacific Sunwear of California Inc. had a 4.9 percent same-store sales increase, better than the 1.6 percent estimate.
On Wednesday, Limited Brands Inc. said its same-store sales were unchanged, in line with the 0.1 percent estimate.
